In their recent book, Anat Admati and Martin Hellwig convincingly make the case for much stronger and simpler borrowing limitations for banks. “Whatever else we do,” they write at the beginning of The Bankers’ New Clothes, “imposing significant restrictions on banks’ borrowing is a simple and highly cost-effective way to reduce risks to the economy without imposing any significant cost on society.” But they warn that the issue poses “a fundamental conflict between what is good for bankers privately and what is good for the broader economy.”

Admati, a professor at Stanford Business School, has been a leader in public debates on how best to regulate banks since at least 2010, when she brought together nineteen other finance professors, including Martin Hellwig, head of the Max Planck Institute in Bonn, and Nobel Laureate William Sharpe, to produce a famous letter, entitled “Healthy Banking System Is the Goal, Not Profitable Banks,” which appeared in the Financial Times that November and is elaborated in the book.